As loan growth is set to recover in 2018, Malaysian banks are poised for greater profitability and asset quality as well as adequate capitalisation and funding for the year ahead, according to Moody’s Investors Service.

“Loan growth will also rebound in 2018, supported by higher demand for corporate loans and stable consumer lending, and this development -- plus stable net interest margins --- will support bank profits,” the credit agency said.

Banks with higher exposure to the oil and gas sector should also witness stabilising asset quality on the back of stronger oil prices.

Whilst the banks will generally be able to support their balance sheet growth through steady retained earnings in 2018, some have estimated that MFRS9 implementation will result in a 20-80 basis point drop of Common Equity Tier 1 (CET1) ratios.

Funding profiles remain resilient, as loan to deposit ratios fell slightly for most banks in 2017 because of sluggish loan growth, but are likely to rise in 2018 when loan growth recovers.

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